In this application, our goal is to define the role of cholesterol and Gli3 in the control of Shh activity and signaling in the neural tube. The secreted molecule encoded by the Shh gene has been shown to play a key role in the development of the vertebrate central nervous system. The activity of Shh is thought to be controlled by cholesterol covalently linked at its N-terminus, but the precise function of this lipid modification in neuronal patterning is not understood. The response to Shh is known to depend on transcription factors of the Gli family, but the detailed mechanism is not understood. Our genetic studies indicated that in the absence of Shh, Gli3 represses ventral neuronal cell fates in a dose-dependent manner. Whereas Shh mutant embryos show reduction in several classes of interneurons and a complete absence of motor neurons, these cell types are rescued in Shh/Gli3 double mutants. These observations indicate that Shh is required to antagonize Gli3, which would otherwise repress ventral neuronal cell fates. The ability of Shh/Gli3 double mutants to generate motor neurons and interneurons strongly suggests that factor(s), in addition to Shh, is involved in the generation of these ventral neurons. Our proposal is aimed at testing the following hypotheses:(l) Cholesterol-modified Shh is essential for normal differentiation of ventral neuronal cell types in the CNS. (2) Shh counteracts Gli3 repressor function in the generation of ventral neuronal progenitor cells by controlling Gli3 processing. (3) Gli3 repressor interferes with RA signaling in the ventral neural tube. To accomplish these aims, we have generated five strong chimeric mice with an altered endogenous Shh locus, designed to express Shh without the cholesterol adduct (Shh-N) in a Cre recombinase-dependent manner. The cellular distribution and neuronal patterning activities of Shh-N will be determined upon germline transmission. We will also determine Gli3 processing using N-terminal Gli3-specific antibody that we generated and analyze patterns of gene expression in mutants with loss-and gain-of-function in Shh signaling. We will also utilize RARE-lacZ reporter mice, RAR antagonist and neural explants to define the relationship between Gli3 repressor and RA. These studies will deepen our understanding of Shh function in the neural tube, and shed new light on the etiology of neural tube-associated anomalies in humans.